Japan may be forced to shut more than a fifth of its refining capacity, at least 1 million barrels per day, in the next five years as oil demand falls faster than expected, the head of the country’s top refiner said on Tuesday.
Nippon Oil Corp President Shinji Nishio also told the Reuters Energy Summit that the company, after its planned merger with Nippon Mining, might shut in 200,000 bpd more capacity than originally planned by 2015, underscoring the rapid demand erosion in the world’s No. 3 consumer.
“I think we are likely to see an even faster decline than the government’s projection,” he said in Tokyo.
Japan’s trade ministry projects oil sales will fall by an average annual 3.5 per cent to 168.2 million kl (2.9 million bpd) in the year from April 2013, from a total 3.46 million bpd last year. It has the capacity to refine 4.8 million bpd.
“Unless we cut the capacity by (1 million bpd), the nation’s production will not be at an optimum level,” he said. “When you think about the future beyond (2013), we will have to cut even further.”
Major Japanese refiners have slashed refinery production sharply in response to weakening demand, but relatively few have thus far mothballed capacity, despite a downturn in global profit margins that is likely to curtail hopes of shifting to exports.
Total oil sales in the year ended March 31 slumped 8 per cent, the sixth straight year of decline, as the global economic crisis has slowed industrial activity, adding to already waning demand caused by an ageing population, a shift toward smaller, fuel-efficient cars and drive to embrace greener energy sources.
Nippon Oil will merge with smaller Nippon Mining Holdings next year, and plan to cut their capacity by about a fifth, or 400,000 bpd, by the end of March 2012.
“Considering that demand is declining at a faster speed than we had thought, 400,000 bpd may be not enough, and we have a scope for an additional need to cut around 200,000 bpd” by the end of March 2015, he said.
Nishio also said that the combined plant in Mizushima — with four crude distillation units totalling 455,200 bpd — was on a shortlist for closure, but declined to give more specifics amid growing speculation about which plants might be shuttered.
Nippon Oil shut its smallest 60,000 bpd Toyama refinery earlier this year, and has earmarked its 115,000 bpd Osaka refinery for conversion to an export-only plant through a venture with state-owned China National Petroleum Corp (CNPC).
Nishio said Nippon Oil expected soon to finalise the Chinese venture that would give CNPC nearly half of the Osaka refinery, although he declined to give more details.
The deal had been delayed to June or later from the initially planned April as global demand and profit margins slumped.
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